Lessons for Procurement Professionals from the Lean Startup

Lessons for Procurement Professionals from the Lean Startup

Large enterprises need to adapt more quickly to a faster paced world. We believe that one way to achieve this is to embrace tactics employed by startups that face similar levels of uncertainty, with the Lean Startup approach representing an excellent test bed.

The Lean Startup methodology is an approach to building businesses that has transformed how startups are perceived. Based largely on the work of Eric Ries, who outlined his philosophy in ‘The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses’ (2011), the approach has garnered worldwide support particularly among the tech startup community.

At its heart is a repositioning of startups from being ‘small’ versions of ‘big’ businesses, to what leading US academic and entrepreneur, Steve Blank, describes as ‘organization(s) formed to search for a repeatable and scalable business model.’ In other words, startups are viewed as experiments designed to answer specific questions, which then help inform product and business decisions.

What has this got to do with Procurement I hear you ask?

In many respects, the change in approach described above is a response to the recognition that the wider context has transformed so dramatically that the old ways of doing things no longer apply. The world we live in has changed utterly in the past few years.

However, these drivers of change are essentially the same, be they related to profound demographic shifts, continuous innovations in software, phenomenal advances in computer processing power, declining budgets or the increased uncertainty we all face in many facets of life. The need to adapt, to modify and to embrace these changes affects us all.

Repositioning how a startup is defined, serves to reframe the narrative. Startups now look to ‘validate assumptions’ they make, by embracing a scientific approach to how entrepreneurs start their businesses by iterating constantly in response to learnings. The days of the ‘if I build it will they come’ model has largely been consigned to history.

The challenge for procurement professionals is very similar to that of entrepreneurs. They too are under a lot of pressure from many angles, and changes of any bent can have numerous knock-on effects (as well as often leading to unintended consequences). On the flip side it is also evident that things need to change.

“If you always do what you’ve always done, you’ll always get what you always got.”

Mark Twain

And this is where some of the key tenets from the lean startup methodology can be extremely useful, as they are designed to help startups avoid paralysis, and to function when faced with significant uncertainty.

1. Test Hypotheses

The lean startup approach is grounded in science, with an emphasis on needing to be clear on the assumptions you are making, and testing these in a methodical manner.

2. Learn Quickly

Lean startup practitioners emphasise the creation a feedback loop based on a Build/ Measure/ Learn cycle, which places speed of learning at the core.

3. Iterate

Learning is put to practise straight away, as products and features are iterated continuously.

4. Get out of the Building

Entrepreneurs are encouraged to immerse themselves in the community to which they are looking to sell, so they are building something the market values.

So how do these elements relate to procurement?

Engaging more actively with the supplier community is akin to getting out of the building. The remaining elements work well with procurement professionals looking to modify their approaches so changes can take place one-step at a time. Procurement transformation needs to focus on a specific aspect of the procurement process. Procurement professionals can then trial innovative approaches in a contained manner, be that breaking demand into smaller lots or looking to facilitate more SMEs in a tender.

The key is: look at innovating one step at a time; be clear on what assumptions are being made; be clear in advance what ‘success looks like.’ Maintaining the status quo is simply not an option.